Liberalism, Once Upon A Time

The 1937 Buxton Liberal Party Assembly:

This Assembly of the Liberal Party, indignantly aware of the grossly unequal distribution of property in this country, believes that the greatest possible measure of personal ownership, with the independence and security it brings ought to be enjoyed by all. It also believes that the opportunities for a full life hitherto open only to the rich should be placed before all. It recognises these twin ends as the inspiration of its domestic policy and pledges its whole strength in urging them on the nation in far-reaching reforms to achieve them.

The 1959 Liberal Party Manifesto:

People Count . . . This traditionally private-enterprise country must pull together to bring about ownership for all.

Liberals want co-ownership and co-partnership schemes encouraged through tax-reliefs. They want special tax-free employee savings accounts schemes brought in. They want more people to be able to buy their own homes. Schedule A income tax and Stamp duty must be abolished. To encourage mobility of labour, Liberals want temporary unemployment allowances increased.

The February 1974 Liberal Party Manifesto:

To finance all these proposals, there must be a radical redistribution of income and inherited wealth, the credit income tax proposals being the principal instrument for the former, and the Liberal proposal for a Gifts and Inheritance Tax, to replace Estate Duty and related in its incidence and rate to the gift or legacy and the wealth of the recipient, for the latter.

19 thoughts on “Liberalism, Once Upon A Time”

To be fair: they proposed the mansion tax and the £10k income tax threshold, whilst Labour increased the inheritance tax allowance, and kept income tax threshold at £6,475, amongst other rather regressive things such as abolishing the 10p tax rate.

In the coalition agreement they seem to have gotten the £1m inheritance tax put on ice, and to have extracted a gradual increase to a £10k income tax threshold.

I am not a particular fan of the Child Trust Fund (or anything else which in Borges’s words leads to the multiplication of the human race) but this was certainly an important test case where the LDs have have pushed the coalition further to the ‘right’ than the Tory manifesto was willing to go.

In fact if it were not for Godwin’s Law I’d be wondering whether there is a dynamic of cumulative radicalisation (in Hans Mommsen’s sense) developing which will push both parties ever further to the right – as the only things the cameron and Clegg cliques are completely in agreement on are privatisation and de-regulation as the answer to all social ills – and in the absence of true comity on other key issues this will become ever more central to the coalition’s programme.

This CTF nonsense has to be knocked on the head. The abolition of the CTF was specifically linked to increases in education funding as a better means of improving lifelong welfare for children. The original (2005) proposals were based on the idea of class size reductions for 5-7 year olds, but (I think) the 2010 manifesto replaced this with the ‘pupil premium’. (See Clegg’s 2009 conference speech: “The first few years are the most important ones. That’s why we’ve always said: scrap the Child Trust Fund, which gives people a cash handout on their 18th birthday. “).

The pupil premium is, iirc, around £3k/year for the most disadvantaged kids. The total cost (or ‘investment’, if you prefer) involved in the pupil premium is £2.5bn per year, dwarfing the £550m or so the CTF would have provided. The logic here is that if we want to tackle inequality amongst children, the pupil premium does it and the CTF does not. The PP means that the total funding available for the education of a poor child is actually pretty close to private school fee levels, making up – in part – for the lack of parental investment.

So, the pupil premium makes a big dent in inequality between children, whereas the CTF makes no such difference. The PP represents a bigger transfer of resources to the poor than the CTF (which was not limited to the poor, and was a pretty good tax break for the middle class). The benefits of a good education are probably worth more in cash terms, over a lifetime, than the CTF, and that’s before considering any of the other benefits of education.

I’ve seen this pattern of argument before, about the Lib Dem tax policy. Taken alone, the increase in personal allowance could be seen as a regressive measure (or at least insufficiently ‘progressive’). But when you look at where the money to pay for it comes from, it comes almost entirely from the well-off, making it a much more progressive policy. Likewise you can’t consider the CTF without considering the PP.

As an aside, I think it’s a shame that the Mansion tax didn’t make it, as it was clearly intended as the thin end of the wedge for Land Value Tax. The main practical opposition to LVT is the lack of any infrastructure for valuing properties and taxing them accordingly; the Mansion tax would have been a trial run. Sadly, if I was capable of spotting this then I guess the Tories must have been so too.

But if we’re going to take Lib Dem policies as a package, then we need to lump in the plan to phase out tuition fees, too. That’s a policy that involves big state cash hand-outs to the relatively more privileged half of the age cohort that goes to college, at the same time as the CTF, which benefits everyone, and in particular poorer people, is being removed.

And if we’re going to look not at the Lib Dem manifesto, but at Coalition policy, then it’s striking that axing the CTF was presented not as a shifting of resources from the one policy to the other, the pupil premium, where resources would do more good, but rather as part of a package of £6bn of cuts.

If you take the pupil premium alongside scrapping tuition fees, it is not entirely clear that those going on to higher education are “more privileged” – certainly the intent of the PP is to reduce/eradicate privilege in earlier stages of education, so that those from disadvantaged backgrounds would be more likely/capable of taking up the possibility of higher education. I would also have thought that tuition fees skew the higher education landscape in favour of the privileged, who will be less worried about the effects of the debt needed to pay for them (and may be able to pay them without taking on any debt at all). I’d also like to see why you think the CTF benefits “in particular poorer people”, since they’re a) less likely to be able to pay anything in and b) more likely to have to make trade-offs in order to make payments in to the CTF (should we put £10/month into the CTF, or buy some books with the same money?).

As regards coalition policy, it’s still the case that only a certain number of policies are affordable. I’m happy with the notion that the pupil premium was a better use of the money than the CTF would have been. The £6bn of cuts is a red herring, since the argument there – from all parties, including Labour – was not about whether those cuts were needed, but over *when* they would be made and axing the CTF next year as opposed to this year would have made little difference either way. The decision still came down to the trade-off between policy preferences, and the pupil premium was, as in the manifesto, preferred over the CTF.

Well if you’re poor: the Local Authority pays tuition fees for you. Tuition fees can be seen as actually pretty progressive on this basis: students only pay if their parents have money.

Similarly, student loans being paid back above a certain level of income is a pretty progressive way of doing things.

When ever more people go to university, and the utility of a degree becomes perhaps more questionable, it’s perhaps a strange priority to redistribute more of the cost of this back to the state, but I am ready to be persuaded, if anyone has some good reasoning to the contrary.

You think the effects of the pupil premium will be to eliminate the bias towards kids from middle class backgrounds in higher education? My goodness. I’ll be impressed if it does.

I did say “reduce/eradicate”, and I agree that the latter is unlikely to be achieved, but the PP is one of the few games in town which even attempt to address this. The CTF, notably, does not. It should make a dent in the inequality between poor and middle-class kids though, and that’s a profoundly good thing for which nobody seems willing to give much credit.

All I was thinking of when I said that the CTF benefits poorer people in particular was that the state pays quite a bit more money into their accounts.

Fair enough. But the difference isn’t massive – I think it’s £500 extra over the lifetime (18 years) of the account (lower-income kids get £1000 whereas everyone else gets £500). The scheme allows parents to pay in £1200/year and there is no tax on the interest which accrues. The money also cannot be withdrawn, presumably no matter how pressing the need may be. Now, obviously only some parents would be able to afford the £100/month maximum, and some won’t be able to afford anything at all.

Let’s take a middle-class family who pay in the maximum every month for 18 years. The govt. pays in £500, the family pays in £21600, and the account is ultimately worth around £29500 (assuming a 3% interest rate). If we reduce the interest rate to 2.4%, representing the 20% tax on the interest that they would have paid without the CTF, the final sum is around £27800 – meaning that the total tax break here is £1700, far bigger than the extra £500 that was being paid to the poor family. I’m deeply unconvinced by the progressive merits of this policy.

Further to that, the middle class family probably has substantial disposable income. They can pay the full amount into the CTF with only minor effects on their lifestyle. For the poorest families, choosing whether or not to pay into the CTF is a matter of real trade-offs. In the worst-case scenario, they might put paying £10/month into the CTF (“for the kid’s future!”) ahead of, say, buying some books, better quality food or just going on days out. The CTF – which won’t do anything for 18 years – competes for resources with the child who needs them immediately. The CTF could cause under-investment in the child in the early years, in favour of a lump sum at 18.

I’m sympathetic to the idea of asset redistribution, which is why I’d favour taxes on land values and some form of guaranteed income for all. If we had this, we could pay every child an equal guaranteed amount into a savings account every year and give them access to the funds at 16/18. But we don’t have this, and the CTF is a dreadfully poor substitute for any genuine redistribution. I realise that it had value as a symbol, but that was all it ever really had going for it, and I’m satisfied that the money is being better spent on other things.

Just asking Rob, since he seems to know about this: the pupil premium will be in addition to the existing formulae that result in disadvantaged children getting about 100% more spent in their schools than advantaged children, right? I’m a fan of the pupil premium — proposed it myself long ago — but I am worried that a new government can use it simply to make more transparent what is already happening rather than to add actual resources. (The 100% more is the figure Steven Timms quoted to the Public Administration Committee in response to comments I made to them some years ago).

A pupil premium would provide extra funding to state schools for each pupil from a disadvantaged background they admit. The current system of school funding in England already does this to some extent, albeit in a rather slow and unnecessarily complex way (see our previous school funding report). In economics, we usually talk about “getting the incentives right” and in principle this policy could simultaneously achieve two objectives: focus more resources on schools with poorer pupils; and partly counteract any incentive schools may have to “cream-skim” more affluent or easy to teach pupils.

I think it’s clear that this is a new spending commitment and not a re-branding of the existing system.

However, the not-so-positive quote:

However, research by the OECD implies there is, at best, a weak relationship between spending per pupil and educational performance across countries. Furthermore, to quote an example from a recent report by Policy Exchange, American researchers used estimates of the effect of spending on the attainment of black children to say that nine times as much needed to be spent on black children to get their attainment up to the national average. Closing ethnic gaps and gaps in attainment by socio-economic status are obviously not directly comparable, but if the cost for getting the attainment of poor children up to the national average were just five times the current spending per pupil, the pupil premium would need to be set at over £25,000.

My take is that it’s a good idea, but the funding levels will most likely have to be ratcheted up over time (though probably not to the levels that Policy Exchange quote in regard to the US).

Whether or not the CTF has more than value as just a symbol is, of course, very hard to judge: it was a policy for the long-term, and it’ll still be a while before the first beneficiaries turn 18. It’s just too early to say what young people will do with their CTF money, whether it’ll make a useful difference to their lives, and so on.

But – yes – it’s certainly a policy rich in symbolism. It speaks to the long-standing ambition of the Liberal Party towards Ownership for All. As a way of supporting young adults, it cuts through the old divide whereby people who went to college got state support and people who didn’t, didn’t. It’s a universal benefit – not everyone gets the same, but everyone gets something worth having – and I’m still one of those people who thinks that the long-term health of the welfare state depends on there being universal benefits, so that middle-class people don’t think that the welfare state is just something they pay for, and that other people benefit from. Just as you hold out the hope that funding on the pupil premium might be ratcheted up over time, I held out the hope that the CTF might be the basis for something that looked more like Ackerman & Alstott’s stakeholder society, and perhaps that a more substantial CTF could help to address the problems of providing student support over the longer run. And one of the other things I like about the CTF is that it’s about giving people money and letting them choose how to spend it.

So – yes – there’s a lot of symbolism here. And just as you acknowledge that a realistic pupil premium is likely to do good, but not that much good, it seems to me that the question of state support for children and young adults ought to involve a range of policies — which is why I don’t much like the Lib Dem language of cutting one to pay for another (all the while drawing attention away from the big state handout they want, to pay the tuition fees for students whose families could comfortably afford them). The CTF was a reasonably cheap policy (it seems to me), the Tories didn’t want to get rid of it, and I don’t see why it needs to have been got rid of.

I have read some comment that the Pupil Premium will have little effect in schools that already had some sort of extra funding because they were in poorer areas. there was a comparison saying that its effect would much greater in some schools than others, because the others already got the extra through other, Labour, policies. I seem to recall Hackney being the example of where schools were already getting almost this much extra anyway, and so would benefit little.

Chris, I remember being told this idea, of giving the middle class benefits to give them a stake, in Sociology at school years ago (Mrs Birks was fantastic), but has anyone ever investigated whether the middle class more readily accept this kind of welfare state at a higher cost in taxes, than the more poor-focused one at a lower cost in taxes?

If the middle-class think the welfare state is too expensive, cutting the bit of their taxes that broadly gets paid back to them would seem the obvious thing to do, rather than expanding payments to them to make it more acceptable. It seems a bit Brownite to me, in the sense of doing silly things he thinks the middle class wanted, in order that he could do things for the poor on the sly.

I don’t know the literature, I’m afraid, though if you come across anything that looks reliable, do point me in its general direction.

My anxiety is that there’s a two-step here: first ministers (Coalition or New Labour, doesn’t matter much) target universal benefits, saying middle-class people don’t deserve to have them. Then, once they’ve made benefits means-tested (or whatever), the only interest most taxpayers have is that those benefits be lower rather than higher, and it becomes politically easier for government to turn the screw on the poor / whoever.

People like David Goodhart seem to think the postwar welfare state was a success because of the ethnic solidarity of white people, or something weird & distasteful like that. But it seems to me much more obvious to think that it was broadly popular because it gave members of all social classes something they wanted, and the middle classes got two things that mattered a lot (free university education and free access to NHS services) and two things that didn’t so much, but I suspect made a non-trivial difference (BBC TV and radio, esp. Radios Three and Four, and child benefit).

I now think we’re in a world where it’s impossible to fund higher education according to the old model, because of the numbers involved, so it seems to make sense broadly speaking to shift the cost onto students and their families, targeting state support to where it’s most needed. But that just seems to me to make it more important, not less, to preserve those other bits of the welfare state that have a genuine cross-class reach.

Thanks Rob: that’s somewhat hopeful news. Just to put my cards on the table, given the choice between a big pupil premium and the CTF, I’d go for the pupil premium, I’d just rather not have to choose.

The point about there being a weak relationship between spending and quality is correct, and is crucial. I worry, a lot, that both the Lib Dems and Tories have taken the wrong lesson from Labour’s interventionism in schools over the years, that what is needed is “setting schools free” and setting the incentives and funding the right way. That would be fine if schools knew what to do to educate poor kids well. But they don’t: what is needed is a structure in which they can figure out better how to do it. Labour tried to tell them what to do and how to do it; the problem with that being that they didn’t know either. The government needs to set up the right kind of structural supports for schools to do the learning they need to do, as well as set the funding and incentives right. Today’s news that high performing schools will not be inspected is exactly the wrong kind of thing — we need inspectors to be in those schools so that when they are in other schools they can tell the other schools what the high performing schools are doing.

I agree with you Chris on the idea of middle-class buy in; the BBC and the NHS are big, totemic examples of that, which is obviously why the true right-wingers in the Tory party are so obsessed with breaking them up. Howver, the idea of needing middle-class buy in is precisely a virtue of the policy of raising the income tax threshold to £10,000. People have said it doesn’t help the very poorest, but actually it does in terms of increasing incentives to get off benefits and back into work, or to go from part-time to full-time work. Universal benefits are not a very targeted approach, and yet Labour figures are often both in favour of those and not in favour of the Lib Dem plan to raise the tax threshold. It seems like Labour think benefits should (often) be universal but tax cuts not, and the Lib Dems think tax cuts should (often) be universal but benefits not.

The question of whether the Child Trust Fund is a useful way for the state to spend money depends, in my view, on the crucial issue of how likely families on low incomes are to pay into these things, and how much this is likely to encourage saving. Certainly if the CTF is paid into fully, that helps people pay for their university fees and so forth if they have them, or alternatively helps with the downpayment on a mortgage or somesuch. Now, that’s a big *if*, which needs research. If, on the other hand, payments into CTFs is low, i see no reason why that money shouldn’t be re-allocated to early years education. Nick Clegg’s argument, for example, is that the educational gap between rich and poor has been shown to set in very early – about 6 or 7 – and that giving people some free money when they’re 18 is closing the stable door after the horse has bolted. Given that the payments into the CTF by the government were never big, it’s hard to say whether they’d have a huge effect on educational attainment amongst the poorest anyway, even if a strong causal link between spending and attainment can be shown, which the jury seems to some extent out on.

I agree with Rob’s comments earlier about a guaranteed income for all; i think wealth redistribution is an idea that New Labour comprehensively failed to see the merit of, and that fact goes some way to explaining how inequality managed to increase slightly under them.

I am reading Tony Judt’s Ill fares the Land. If Judt is right and politics in all Western countries have moved to “economistic thinking”, it would be fairly unsurprising if even the liberal party now are less egalitarian than they were in 1974. Or would you say the tide is turning?